No dividend for shareholders in New Zealand’s largest construction company, Fletcher Building, after it revealed a loss of $NZ190 million in the wake of cost overruns on more than a dozen building contracts.
Directors said yesterday that subject to a return to satisfactory trading performance dividends will resume in the 2018-19 year report (meaning an interim could be paid if there are no more problems). 2016-17 saw a total payout of 39 NZ cents a share.
Fletcher shares were trading at $6.06 on Wednesday, down 3.6% on the ASX just before 1pm (3pm NZ time).
The loss compares to a profit of $NZ94 million in the 2017 financial year and $NZ462 million the year before that.
Operating earnings before significant items, and excluding the losses in the Building + Interiors (B+I), of $NZ710 million is within the FY18 earnings guidance of $NZ720 million.
CEO Ross Taylor told the market that the terrible losses in the company’s Building and Interiors division “have been maintained” at the shocking $NZ660 million announced to the market in February of this year.
Revenue for the year was $NZ9.471 billion, up just 1% from 2016-17 "driven by a solid sales performance across core businesses in New Zealand and Australia, offset by a reduction in Construction revenues,” according to the Fletcher statement to the ASX yesterday.
Significant items for 2017-18 included a charge of $NZ168 million, which comprised group restructuring charges ($NZ91 million) and impairment charges ($NZ114 million), offset by gains on divestments ($NZ37 million).
The restructuring costs and business divestments were as a result of the implementation of the new Group strategy announced on 21 June 2018. The company has its Formica products business on the market at the moment.
In February this year Fletcher shocked markets when it announced $NZ660 million in losses from its Building and Interiors division, leading to chairman Sir Ralph Norris standing down.
He said the board had to be accountable for the troubled building group’s massive construction losses. Norris had planned to stay in the job until next year.
That was after the company’s construction unit, responsible for delivering many large scale projects in New Zealand also caused financial woes, losing $NZ292 million in 2017 due to “underperformance in the management of two key contracts, one in Christchurch and one in Auckland”.
At the time Norris blamed the loss in its construction division in 2017 to poor project management and governance, design changes and a lack of resources, especially workers.
Fletcher Building chief executive Ross Taylor said on Wednesday that while there had been volume and revenue growth across its New Zealand and Australian businesses…”these gains have been more than offset by increased costs and our need to invest ahead of plan to meet higher than anticipated market demand.”
In New Zealand the Residential and Development division performed strongly, growing revenue and earnings, the company said, accounting for 24 per cent of revenue.
The company said Australian gross revenue increased, with all businesses achieving positive sales growth and performance improvements but operating profits decreased, as the majority of businesses were impacted by increased input costs, particularly in energy and resins.
"With a new strategy in place we have started the new financial year with clear priorities and an operating model that will support us to deliver against them."
The company would focus on growing its core businesses, continuing to stabilise its construction division, and completing the divestment of non-core businesses Formica and Roof Tile Group.
"In both New Zealand and Australia we expect activity in the residential sectors to decline slightly, while activity in the non-residential, commercial and infrastructure sectors is likely to increase."
